 WORLD SHIPPING...BOUNCING BACK AGAINThe mood is one of supreme optimism. The slump seen in the shipping markets over the past couple of years has definitely been halted. The pendulum began to swing back to a much healthier levels late last year and continued to firm throughout the first quarter of 2000.
Source Barry Rogliano
Where have we heard this before? We are constantly being told that shipping is a cyclical business. However, it does look as though the current upward trend could be with us for some time to come. What is driving this upturn in fortunes? Both the economies of northern Europe and the U.S. are buoyant, despite problems with the Euro.
Global GDP growth is forecast at an above average 4% this year which translates into an increase in ton-miles, especially as the Asian economies are leading the way. The exception is Japan which has not turned the corner yet. Another factor that increasingly plays its part is the world's changing weather patterns. These are bringing more severe conditions to certain areas of the world with dense populations, leading to more cargoes being shipped, including aids through the World Food Program. The World Bank has estimated 1999's seaborne trade in ton-miles at 21,480 billion, which is much the same as the year before, but significantly down on 1997 when the Asian crisis began to bite. However, strong growth is forecast for this year and next, rising to as much as 35,000 billion by 2010 and up to nearly 41,800 billion by 2014, which, if true, will see seaborne trade almost doubling in 15 years.
Opportunities to expand or replace fleets were rife last year. For example, the price for a new Panamax fell to just $18.5 million during the middle of the year. By the end of May this year, the cost had risen to around $23 million and is firming. Likewise, you could get a VLCC for the incredibly low price of $68 million last year. Now you would have to pay in the region of $73 million and possibly $74 million for options, according to Simpson, Spence & Young. We have seen the rise of the so called "Super Handymax"-- a bulker of around 50,000 dwt or over, which often gets confused with Panamaxes. Cleaves makes the point that the combination of late deliveries, higher prices and rising interest rates could work against the shipyards, as owners will look to existing tonnage on the sale and purchase market to fulfill their needs. This could happen at precisely the time when owners, having reaped the benefits of a short term bonanza, may feel sufficiently sated to lock into medium term deals of around three to five years, at lower, but still profitable levels. Although rising, the cost of newbuildings is still relatively cheap compared with a few years ago and as the shipbuilding industry continues to rationalize, building berth slots will become more of a premium if the current hunger for new tonnage continues unabated. The cost of newbuildings also reflects on the sale and purchase market. While prices rise but remain on the low side, resale deals become more attractive as a seller can see a book profit straight away, while the buyer gets a new ship to take advantage of the rising market without waiting for it to be built. Recent examples include two Panamaxes ordered from a South Korean yard in the second quarter of 1999 for $18.9 million each. They were recently resold for about $22 million each. A Capesize also contracted from a South Korean yard for $32 million was resold for $36.5 million, even though the ship is not due to be delivered until the end of next year. Sales values of one or two year old ships also remain very competitive with newbuilding prices.
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